1. These appeals by the revenue are consolidated and disposed of by a common order for the sake of convenience as they involve a common ground. These appeals relate to the assessment years 1970-71 to 1975-76 and are directed against the consolidated order of the AAC dated 17-9-1980 wherein he held that the taxes deducted at source from the salaries of the employees but remaining unpaid to the credit of the Central Government for more than 12 months, were not covered by Section 2(m)(iii) of the Wealth-tax Act, 1957, and accordingly deductible in the computation of net wealth. The common ground taken by the revenue is that the learned AAC erred in doing so.
2. At the time of hearing none appeared on behalf of the assessee although the notice of hearing was duly served on 17-2-1982 and acknowledgment is on record. Therefore, the learned departmental representative was duly heard and the case is decided ex parts on merits of the Base.
3. The assesses is an individual. While computing the net wealth of the assessee the WTO determined the share of interest of the assessee in the partnership concern, Chatterjee & Polk. While determining the interest of the assessee in the aforesaid concern he made certain adjustments, with the result certain amounts of income-tax liability appearing in the balance sheets of the firm were excluded by the WTO, as detailed under column 4 in the table shown in paragraph 3 of the order of the AAC. The case of the WTO was that the amounts were outstanding for a period of more than 12 months on the respective valuation dates and, hence, hit by Section 2(m)(iii).
4. On appeal, inter alia, the AAC held that the liability arising out of Section 192, that is, deduction of tax from the salaries payable to the employees, would not amount to a liability arising in consequence of any order passed under the Income-tax Act or other Acts specified therein. Therefore, he held that the conditions envisaged under items (a) and (b) to Sub-clause (iii) of Section 2(m) would not be satisfied in respect of any liability of the assessee for payment of tax of some other persons within the meaning of Section 199 of the Income-tax Act, 1961. Consequently, he rejected the contention of the WTO that the timely deposit of the tax deducted at source was a duty cast on the assessee in pursuance of the relevant provisions of the Act and, therefore, the liability was hit by Section 2(m). However, the AAC had given a direction to ascertain the correct quantum of such liability as the WTO has expressed desire to do so. Hence, these appeals by the revenue before the Tribunal.
5. The learned departmental representative has been heard at length. He argued that the view of the AAC that the tax referred to in Section 2(m)(iii) is the tax payable by the assessee on his income, and not the tax on some one else's income was not correct inasmuch as what has been deducted at source under Section 192 is nonetheless income-tax and there is no distinction between the income-tax payable by the assessee and on behalf of others. He further argued that the view of the AAC that the tax payable should arise from an order passed under the Income-tax Act and the liability under Section 192 read with Section 200 does not arise from such an order and, hence would not be hit by Section 2(m)(iii), was not correct. In this connection, he has laid emphasis on the word "or" which appears after the phrase "in consequence of any order passed under" and before the phrase "in pursuance of this Act" and urged that it is disjunctive in nature and one cannot conceive of an order which is not passed under the Act but in pursuance of the Act giving rise to a liability for payment of tax, interest or penalty. In other words, he pointed out that the liability may arise in consequence of an order passed under the Act or in pursuance of the Act. The liability under Section 192 falls under the latter category, namely, the liability arising in pursuance of the Act and, therefore, would fall within the mischief of Section 2(m)(iii).
6. We have duly considered the submissions made by the learned departmental representative and also perused the orders of the authorities. At the outset, we wish to point out that Sub-clause (Hi) of Section 2(m) deals with debts or liabilities by way of tax, penalty or interest payable in consequence of any order passed under or in pursuance of the Income-tax Act or other Acts. In the case of the assessee, we are only concerned with tax, and not penalty or interest.
In the case of interest the liability may be automatic even though the passing of a separate order may not be necessary. In the case of penalty or tax the passing of an order is the first and preliminary stage before it becomes a liability or debt owed in pursuance of a demand notice issued in this regard. Courts have held that the income-tax payable becomes "debt owed" when a demand notice is made while the tax chargeable in respect of the previous year's income was a "debt owed" within the meaning of Section 2(m) as at the corresponding valuation date. Items (a) and (b) of Section 2(m)(iii) clearly show that the amount of tax, penalty or interest payable could be such that the assessee can claim in appeal, revision or other proceedings as not being payable by him or, although it is not so claimed but nevertheless outstanding for a period of more than 12 months on the valuation date.
The preamble of Sub-clause (Hi) of Section 2(m) provides for exclusion of the tax, penalty or interest payable in consequence of any order passed under or in pursuance of the stated Acts. A plan reading of this clause shows that the amount of tax, penalty or interest payable is in consequence of any order passed under the stated Acts or in pursuance thereof. This clause consequently does not apply to a case where any order of assessment or levy is passed. The purpose of Sub-clause (Hi) of Section 2(m), as inserted by the Finance Act, 1959, with retrospective effect from 1-4-1957, is explained by the memorandum explaining the financial proposals as under : Ordinarily, debts owing by the assessee have to be deducted in computing its net wealth for the purpose of wealth-tax. To remove any doubt, in regard to the treatment of tax arrears as deductible or otherwise, it is proposed to clarify, with retrospective effect, that taxes- ii. which are otherwise outstanding for more than one year on the valuation date; will not be referred as debts owing by the assessee for the purpose of deduction in computing its net wealth.
A perusal of the above extract, especially the words "tax arrears" shows that only for the purpose of regulating the claim of tax arrears as a debt owed the clause has been inserted. The purpose of the said clause has also been spelt out by the board in a Circular No. 2(WT) of 1959 dated 29-5-1959. In common parlance, the phrase "tax arrears" would always mean the tax determined in consequence of any order passed in respect of taxation of incomes or profits or wealth or estate or expenditure or gift. In certain circumstances the tax can be determined as payable by the assessee, if not by way of a regular assessment but in pursuance of certain provisions of the Act for taxation of income ; for example, the penal tax or additional income-tax levied under Section 104 for none or inadequate payment of dividend vis-a-vis the statutory percentage of the distributable income. Even in such a case a specific order is required to be passed before raising tax. Further, the use of the word "or" in Section 2(m)(iii), although it is disjunctive in nature, so pointed out by the learned departmental representative, nonetheless the passing of an order is sine qua non for treating the tax, penalty or interest payable thereunder as a debt or liability.
7. Now turning to the case of the assessee, Section 192 of the Income-tax Act enjoins upon any person responsible for paying any income chargeable under the head "Salaries" to deduct income-tax and pay it to the Central Government on behalf of the person from whose income the deduction was made within the prescribed time. Section 201 of the Income-tax Act dealing with the consequence of failure to deduct or pay such tax deducted at source provides that the person responsible for paying income chargeable under the head "Salaries", etc., shall be deemed to be an assessee in default in respect of the tax. Section 202 clearly lays down that the power to levy tax by deduction under Sections 192 to 195 of the Income-tax Act shall be without prejudice to any other mode of recovery. The various rules under the Income-tax Rules also prescribed certain returns to be submitted by the person responsible to the ITO concerned. Section 221 provides for levy of penalty in respect of an assessee who is deemed to be in default in making payment of tax deducted from the salaries payable to his employees. AH these provisions are under Chapter XVII dealing with collection/recovery of tax. The tax deducted at source under Section 192 of the Income-tax Act is not in consequence of an order passed under or in pursuance of the Income-tax Act but under the statutory provision holding the person responsible for payment of income chargeable under the head "Salaries" as an assessee in default if such tax was not deducted or not paid after deduction. Therefore, the provisions, relating to tax deducted at source, treat the responsible person concerned as an assessee for a limited purpose of collecting the tax from the employee for and on behalf of the Central Government and, thus, treat him as an agent of the Central Government. According to Sub-section (2) of Section 201 of the Income-tax Act, the tax deducted but not paid together with simple interest payable thereon, if any, for delayed payment shall be a charge upon all the assets of the person or the company, as the case may be. Thus, the tax and/or interest payable by the responsible person concerned would be a liability on all his assets. Such liability has not been fastened by way of any order passed under or in pursuance of the Income-tax Act but by virtue of the specific provision for recovery of tax. The position is clear when we look at Section 202 of the Income-tax Act, which clearly specifics that the levy of tax by deduction at source is one of the modes of recovery of tax.
There is no question of disputing by way of appeal, revision or other proceedings as not payable, so far as the tax deducted at source from the salaries of the employees is concerned. Similarly, the time limit of 12 months outstanding on the valuation date is not applicable in respect of tax deducted at source inasmuch as such tax is bound to be paid within the specified time under Rule 30 of the Income-tax Rules, 1962. It is only for the recovery of the tax deducted at source or failure to do so that the person responsible is treated as an assessee in default and the amount is sought to be recovered from him. There is no scope for extending the deeming provision contained in Section 201 of the Act for the purpose of Section 2(m)(iii) of the Wealth-tax Act.
In this view of the matter, the decision of the AAC is quite justified and consequently does not call for any interference.